Globalization and the Theory of Input Trade.

Thompson, Henry

Ronald W. Jones

Cambridge, MA: MIT Press, 2000. Pp. x, 177. $24.95.

This short book on trade theory with internationally mobile inputs based on the 1997 Ohlin Memorial Lectures of Ronald W. Jones is a must read for students of trade theory. With clear English and diagrams, Professor Jones surveys trade theory in the presence of internationally traded productive capital input. The models are beautifully developed with clear and masterful intuition. The reader is literally compelled to mull over each sentence, to think about the economics. Reading the book is an educational pleasure.

The book is divided into two sections on positive and normative issues in "globalization," taken to mean the increased openness of economies to trade in products and international capital. The models are static or comparative static in nature rather than dynamic growth models. "Capital" is the productive capital that enters into production functions.

The fundamental models of trade in inputs are carefully presented. The "classic" issue of the choice between international mobility of products and factors of production is cast in a new light. Professor Jones' idea that the "hinterland" of available resources provides a source of comparative advantage is developed. There is a chapter on trade in intermediate or "middle" products.

The chapters on normative issues present novel ideas. Jones advances an alternative explanation for formation of international policy. There are two theories at present, neoclassical and public choice. The neoclassical theory of policy formation is based on national utility maximization by a benevolent government. Public choice theory is based on the interaction of various special interest groups.

Jones adds a theory of "civil war" between governments and private sectors. Governments across countries do indeed have incentives more compatible with each other than with their own private sectors. The same can be said for private sectors across countries. Talk to businesspeople about their problems, and having to deal with the government will be close to the top of everyone's list. The private sector wants fair enforcement of reasonable laws and policies, and correctly suspects that governments are inclined to produce monopolies and unfair competition. Look for the Jones civil war theory of trade policy to start showing itself in textbooks and journal articles.

Although the field of international trade may be specialized beyond much hope of synthesis, Professor Jones should write a similar book on international trade in products. There are important underlying issues that churning academic articles and generic textbooks fail to bring to the surface. Ron Jones is uniquely positioned to provide a clear, concise treatise on the state of trade theory and its future potential. For the next generation of trade theorists, such a book would be indispensable.